13/03/2015
Not even retirees are safe from the corruption scandal engulfing Brazil’s state oil producer.
In the bond market, the fallout from alleged kickbacks at Petroleo Brasileiro SA has already swept up some of the nation’s builders, oil-rig companies and banks. Now Rioprevidencia, the pension fund for employees for the state Rio de Janeiro, is proving to be another victim.
The company took the unprecedented step last year of selling $3.1 billion of bonds backed by crude royalties it gets primarily from Petrobras to plug a deficit. With the oil producer facing billions of dollars in writedowns after a probe uncovered inflated contracts and crude prices tumbled, Petrobras is selling assets and cutting costs. That’s threatening to upend the royalties that Rioprevidencia relies on for 30 percent of its revenue, which it uses to pay debt.
Its bonds have plunged 8.6 percent since November, when police arrested more than 20 people as part of an investigation into whether Petrobras executives demanded bribes from builders in exchange for contracts.
Petrobras “is reducing considerably its investments, and that raises concerns whether it will be able to pay the royalties as initially thought,” Ricardo Mollo, a corporate finance professor at Insper Institute of Education and Research in Sao Paulo, said by telephone. “The fund doesn’t have alternative funding in dollars to pay coupons.”
‘Robust’ Structure
In an e-mailed statement, Rioprevidencia Chief Executive Officer Gustavo Barbosa said the bonds were structured in a “robust” way to withstand a decline in oil prices and that interest payments are being made regularly.
He declined to comment on the Petrobras corruption probe and the prospect of a decline in royalties.
On Feb. 4, Fitch Ratings downgraded Rioprevidencia’s notes by one level to the cusp of junk, citing “increased and prolonged uncertainty regarding Petrobras” and its ability to meet production expectations amid the plunge in oil prices.
The rating company estimates that the royalties Rioprevidencia receives may fall by more than 40 percent over the next two years as oil prices average $55 a barrel in 2015 and $65 a barrel in 2016. That’s down from $109 a barrel in June, when the fund sold $2 billion of bonds due 2024.
Rioprevidencia’s notes are “a true sale of the royalties rights, and it is subject to the risk of price and volume,” Mirian Abe, an analyst at Fitch in Sao Paulo, said in an e-mail.
Petrobras Writedowns
Petrobras didn’t respond to an e-mail and a telephone call seeking comment on royalties to Rioprevidencia.
The oil producer said last week it plans to sell $13.7 billion in assets over the next two years as it seeks to cut the biggest debt load among publicly traded crude companies at $135 billion. The company’s inability to determine the scale of the writedowns has prevented it from reporting audited financial results, prompting Moody’s Investors Service to lower the company’s rating by two levels to junk on Feb.24.
Oil prices have plunged 45 percent since June.
A decline in the amount of assigned oil revenue received by Rioprevidencia may “materially adversely impair its ability to pay principal, interest and additional amounts, if any,” according to the bond’s prospectus.
Rioprevidencia’s 2024 notes have tumbled 9 cents since November, pushing up yields by 1.33 percentage points to 7.35 percent, data compiled by Bloomberg show. That’s 2 percentage points above the average for similar-rated debt. The bonds declined 0.37 basis points to 92.3 cents on the dollar as of 1:12 p.m. in New York.
‘Perverse Effect’
Daniel Stefanetti, a money manager at Ethenea Independent Investors SA, which owns the Rioprevidencia bonds, said the company’s royalties won’t be severely impaired since Petrobras is likely to boost production to generate more cash.
“The perverse effect of the recent slide might very well be that it forces companies to produce even more,” he said by e-mail from Luxembourg.
In a quarterly report sent to the trustee of the notes, Rioprevidencia forecasts its debt-service obligations will exceed the amount of cash it generates for the first time in the first quarter of 2016.
As of July 2014, Rioprevidencia had an actuarial deficit of 69.1 billion reais ($22.6 billion), compared with a 66.9 billion reais shortfall for all of 2013, according to Fitch. The proceeds of the fund’s bond sales were earmarked to cover deficits over the next three to four years, Fitch said.
“If a pension fund is coming to market to sell notes in a foreign currency, that already shows they are going through difficulties,” Klaus Spielkamp, the head of fixed-income sales at Bulltick LLC, said from Miami. “It will be tough.”
To contact the reporter on this story: Filipe Pacheco in Sao Paulo at fpacheco4@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Lester Pimentel, Bradley Keoun
Fonte: Bloomberg – 09/03/2015
